Economy

Between 1960 and 1988 Soviet Armenia achieved growth of 30% in GNP (during the same period, growth of GNP in the USA was 135%) but the following years were catastrophic for the economy. Firstly the devastating earthquake in northwest Armenia in December 1988 resulted in 25,000 deaths, 20,000 injured and 500,000 made homeless and caused huge damage to infrastructure. This was to be followed by the break-up of the Soviet Union and war with Azerbaijan so that between 1989 and 1994 GNP fell from US$4,500m to US$652m.

Armenia’s economy has had a very difficult time since its independence. Agricultural output declined by two-thirds from 1991 to 1993 and industrial output was essentially down to nothing in 1992 because of the restructuring after the breakup of the Soviet Union and the ongoing dispute with Azerbaijan that effectively cut off the country’s energy supplies. Nearly two-thirds of the population was unemployed in 1993, while inflation hit 30 percent by 1995. Robert Kocharian’s reelection to the presidency of Armenia in 2003 was surrounded with allegations of vote fraud, which drew criticism from other European countries and the United States.

The economy was further crippled by the lingering effects of the 1988 earthquake in Spitak. As late as 2001, nearly 200,000 displaced people needed homes and jobs while the large area surrounding the earthquake needed a completely new infrastructure, including buildings and roads. As a result, foreign aid and the limited tax money received had to be funneled in that direction. Another 300,000 refugees from Nagorno-Karabakh and other areas of Azerbaijan had to flee their country to live in Armenia because they opposed the Azerbaijani rule of the Armenian enclave. Many of these people have moved to larger towns and the capital, Yerevan, seeking work, housing, and humanitarian aid. As the country struggles to provide them with the basic necessities of life, it is taking away money that could have been used to help build the economy.

The Nagorno-Karabakh crisis has created other economic problems as well. The country has spent millions of dollars in military support when it could have been using the money to help boost other economic sectors. At the same time, it lost precious time developing trade agreements with countries such as the United States. Finally, it has discouraged intercountry projects, such as the development of the Baku-Tbilisi-Ceyhan oil pipeline, which runs from the Azerbaijani coast on the Caspian Sea to the Georgian Black Sea coast. (Armenia could have negotiated to have a link to the pipeline but delayed its decisions so long it was no longer possible by the time the pipeline began construction.) Add to this a significant amount of economic emigration.

Since 1990, more than 500,000 people, or a total of one-fifth the pre-1990 population, have fled the country either because they lost their homes in the 1988 earthquake or for economic reasons. Most of these people immigrated to Russia, the United States, France, and Lebanon. At the same time, these expatriots also provide a substantial resource for many Armenians. Every year, they send about $250 million to relatives and friends in the country, slightly less than half the country’s annual budget. While Armenia claims it would like its citizens to return, the truth is that the country’s people would fall into further poverty if they did.

Agriculture employs around 46% of the working population while 15% work in industry and 38% in services - this last figure has increased considerably as the economy has restructured. Unemployment is estimated at 15%. Another source cites 7% of the working population as unemployed although both of these figures are somewhat misleading as perhaps 70% of the population isn't actually paid wages: the many subsistence farmers, tradesmen and owners of small businesses receive no salary as such.

The main exports are cut diamonds (which are imported uncut - Armenia has no sources of diamonds of its own), brandy and minerals: copper and molybdenum. By value the main export trading partner is Russia at 19.7%, then Germany at 17.4%, Netherlands at 12.4%, Belgium at 8.5% (to which the diamonds go), Georgia at 7.7% and the US at 5%. The principal imports are natural gas, petroleum, tobacco products, foodstuffs and diamonds and the source of imports is Russia at 19%, China at 8.6%, the UK at 7%, Turkey at 6%, Germany at 5.7%, the US at 5% and Iran at 4.6%.

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